Amazon is one of several FANG stocks close to breaking up
Summing up the past week, there has been a fairly strong upward trading momentum, especially for the US stock markets, with Nasdaq in the lead. But European stock markets have also performed quite well. The relative underperformance of the Stockholm Stock Exchange (OMX30) so far in 2022 can probably be explained by the OMX30 containing many cyclical industrial companies.
Summing up the past week, there has been a fairly strong upward trading
momentum, especially for the US stock markets, with Nasdaq in the lead. But
European stock markets have also performed quite well. The relative
underperformance of the Stockholm Stock Exchange (OMX30) so far in 2022 can
probably be explained by the OMX30 containing many cyclical industrial
On Thursday 23 June, the industrial PMI figures for the US and the major European countries (Germany, the UK and France) were released. The overall picture was one of weakening industrial activity. While supply chain disruptions are easing somewhat, companies are not fully able to compensate for rising input prices. The Michigan index indicated a slightly lower long-term anticipated inflation rate in the United States.
Industrial metals such as copper and zinc have faced a weakening momentum. The market is beginning to discount a recession. In a normal business cycle, this should mean that the recent sharp rise in interest rates is slowing down.
The 10-year US Treasury yield is now traded at 3.18% compared to the last peak of 3.48% as of 14 June 2022. This should be supportive of the valuation of stocks, relatively speaking. Yesterday there was also news about good harvests in Australia and Brazil, which might dampen increasing food prices somewhat.
That stock markets may be oversold in the short term is illustrated by the graph below, where the S&P500 index has fallen below the long-term curve for corporate earnings growth.
S&P 500 Change in forwarding 12-Month Earnings-per-Share (EPS) versus Change in Price: 10 Years.
There is also much to suggest that after a six-month period of holding value stocks, we may now be entering a rotation towards growth stocks. IT stocks, where relatively more of the profits are anticipated to occur later in time and therefore more interest-sensitive when it comes to valuation multiples.
Several of the big US FANG or Technology stocks, such as Alphabet (Google), Amazon, Apple and Microsoft, now look technically interesting. They are all close to breaking above resistance levels. We choose Amazon, as the company has had a reliable ability to generate profits in a scalable form long term. This is although the group´s earnings are estimated to decline this year.
Amazon (in USD), daily one-year share price chart
Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.
In Amazon's case, resistance is at the USD 125 level. If the stock manages to cross it, it could be relatively free up towards USD 135.
Amazon (in USD), five-year price chart
price levels in Amazon are only marginally higher than the previous price
bottom from the Covid crash in March 2020.
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
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